Venture capital projects still tough to kick-start

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Venture capital funds and private equity investments clocked up
double-digit returns between 1987 and mid-2004, according to data
released yesterday, but generating interest in Australian venture
capital projects remains difficult.

When calculated on a compounding or cumulative basis, venture
capital and private equity investments generated an internal rate
of return of 10.6 per cent a year, the Australian Venture Capital
Association found in its analysis of data contained in the 2004
Thomson Venture Economics Survey for 2004.

And in the upper quartile, the internal rate of return was 27.5
per cent, much of it driven by what the association described as
"astute investments" that in some cases earned investors a fivefold
return over three years.

In 2003-04, those strong returns encouraged private equity
interests to raise almost $2.1 billion to pump into projects, while
venture capital raised $822 million, up 60 per cent on the last
financial year.

The association's chief executive, Andrew Green, said money was
being invested "almost as fast as it was being raised" as cashed-up
investors looked to lucrative deals, such as Pacific Brands, for
inspiration. Pacific Brands, which manages and markets a range of
household names, was bought in 2001 for $780 million - and floated
early last year with a market capitalisation of $1.25 billion.

But he said investors recognised the riskiness of what were
often hit-and-miss attempts to invest wisely, particularly at the
start-up stage. "You're dealing with high-risk ventures, no
question about it. And if you get one in 10 that comes home
strongly, then you're lucky."

Mr Green said Australia remained a net exporter of risk capital,
with foreign investors reluctant to invest in projects because of
tax implications.

He called on the Federal Government to consider initiatives that
would reverse the tax issues and generate interest from foreign
investors.